Energy & Environment

Weekly Oil Market Crash Update: Hurricane Zeta Forces Shutdown Of Half The Gulf’s Oil Production

Plus: Mike Bloomberg dives into the Texas Railroad Commission race, and a new oil and gas acquisition is announced.

This satellite image provided by the National Oceanic and Atmospheric Administration shows Tropical Storm Zeta, Wednesday, Oct. 28, 2020.

Hurricane Zeta has entered the Gulf of Mexico, setting off another wave of shutdowns for many oil producers in the region. Reuters reports that BP, Shell, and Chevron are among the companies that have already evacuated some offshore facilities.

Overall, energy producers have shut down around half of the Gulf's oil output in what is now a somewhat familiar move. Hurricanes Laura and Beta also caused companies to halt operations. Temporarily shutting down production is an intense process, made even more difficult by COVID-19.

Also this week, Houston independent Contango Oil & Gas announced it will acquire Tulsa-based Mid-Con Energy in an all-stock deal.

"The combination continues Contango's consolidation strategy," the company said in a statement, "increases its exposure to oil reserves at an attractive price, increases corporate margins via scale and further cost rationalization, and amplifies Contango's ability to play offense amid the dislocation in the sector."

It comes just a week after Texas companies Pioneer Natural Resources and Parsley Energy announced their merger. It's a clear sign the industry is contracting, which likely means more job cuts in the near future.

We also learned this week that New York Billionaire Michael Bloomberg has donated $2.6 million dollars to the democratic candidate to the state commission that regulates the oil and gas industry, according to the Texas Tribune.

Dallas engineer and lawyer Chrysta Castañeda hopes to be the first Democrat elected to the Texas Railroad Commission in 30 years. She's running against political newcomer Republican Jim Wright.

Castañeda has made finding solutions to flaring — the burning off of excess gas into the atmosphere — central to her campaign, and Democrats have garnered big out-of-state donations in part by positioning this as the most important environmental race in the country.

And as oil continues to hover around $40 a barrel, many analysts are looking to see what Organization of the Petroleum Exporting Countries — OPEC — plans to do in terms of production. The international oil cartel agreed to cut production earlier this year in hopes of stabilizing declining prices.

In a recent Forbes article, University of Houston Energy Fellow Ed Hirs argued against expecting OPEC to do any favors for U.S. producers.

Through 2021, Texas producers can expect OPEC to keep production at a level that does not force oil above $50 a barrel, the breakeven price for many U.S. operators, Hirs said.

"Sure the OPEC nations would like to generate some more revenue," Hirs wrote, "but having gone through all this pain already, they cannot afford an untimely resuscitation of the U.S. shale patch."

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